Every year SDM 100 survey asks a few open-ended questions such as, “What was your company’s most significant accomplishment last year?” “Describe the market for security systems sales in the past year compared with the previous year,” and “What issues and trends do you think will have the greatest impact on your business in the coming year?” This year, one particular phrase came up again and again in all three of those answer sections: supply chain issues and how they were dealing with them.

Take No. 35, Custom Security Systems Inc.’s reply to their significant accomplishment: “A tremendous accomplishment for us was keeping parts in stock for installs with current supply chain issues,” they wrote.


2022 SDM 100 Preview

Rank 2022 Rank 2021 Company/ Headquarters Recurring Monthly Revenue,
Dec. 31, 2021
1 1 ADT
Boca Raton, Fla
$359,445,000
2 2 Vivint Smart Home
Provo, Utah
$125,200,000
3 3 Brinks Home Security
Farmers Branch, Texas
$39,000,000e
4 4 Vector Security
Warrendale, Pa.
$18,904,000
5 9 Alert 360 / My Alarm Center
Tulsa, Okla.
$15,345,354

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AMAROK LLC, No. 12, wrote: “AMAROK found strong demand for our service in 2021. We grew across all sectors that we service. Supply chain issues have forced us to carry excess inventory, but we’ve weathered the storm reasonably well.”

“Supply chain issues affected our profitability (increased cost of acquisition of parts and delayed shipping) along with employee absences. Not only did we not go out of business during the COVID pandemic, but we grew and thrived during the toughest times.”
- Titan Alarm

No. 70 Titan Alarm summed up nicely what many of the top 100 seemed to experience in 2021 and continuing into 2022: “The market had higher than usual demand during 2021 compared to 2020. It seemed like all segments experienced growth and need. Many clients are increasing security and receiving funds for greater security measures. Supply chain issues affected our profitability (increased cost of acquisition of parts and delayed shipping) along with employee absences. Not only did we not go out of business during the COVID pandemic, but we grew and thrived during the toughest times.”

Of course, supply chain issues are just one fallout from the impact of COVID-19. While the immediate crisis has faded, and — at least as of this writing — the pandemic appears to be moving to an endemic “live with it” phase, lingering COVID-19 issues were clearly still being felt by many of the top security dealers in 2021. And the changes it has wrought to both home and work life are definitely impacting the security industry, from inflation to labor shortages to changes in office space occupancies and new technology demands.


Jennifer Holloway
IMAGE COURTESY OF CIBC

Price Increases, Robust Pipelines Could Drive Growth for Security Companies in 2022

Like many others, the security industry faced headwinds on multiple fronts in 2021. Supply chain disruptions led to delays in procuring necessary materials, while companies spent more on truck rolls and equipment as the 3G sunset deadline approached. Labor costs were higher as well, with security companies increasing manpower hours as they replaced 3G radios across their portfolios.

The cost of labor was impacted by rising wages as companies jockeyed to retain workers, particularly highly skilled technical staff. And challenges around labor weren’t limited to pay; many companies grappled with scheduling as workers became unavailable for various reasons, such as regional COVID-19 waves.

Surging inflation also dealt a blow to companies’ bottom lines in 2021, as prices skyrocketed on everything from insurance and rent to suppliers and gas. In response, security firms made tough decisions throughout the past year as they adopted a “COVID-19 expense discipline,” attempting to right-size expenses and trim excess spending. This mindset, which began with the onset of the pandemic in early 2020, carried many companies through 2021 and persisted into 2022.

The good news is that these challenges appear to be easing somewhat as we head into the second quarter of 2022. Security companies hope to reduce their backlogs as the supply chain is restored, and as equipment becomes available or companies find suitable substitute equipment. Dropping COVID-19 case counts is also making scheduling projects easier as more workers return to the field.

Many security companies are experiencing increasingly robust sales pipelines, a result of pent-up demand from commercial customers eager to restart projects they paused during the pandemic. It’s an encouraging sign for firms seeking growth in recurring monthly revenues (RMRs). Additionally, price increases could be significant drivers for growth of RMR in the coming months, particularly for those companies that choose to pass along their higher costs to the customer. Increasing prices across all recurring services, installations, time and material service, and projects is a solid way to protect margins. As a result, security companies can likely expect higher average RMR per customer; however, its impact on margin will be dependent on whether the price increase outpaces expenses. The alternative for companies who decide not to raise prices is to see their margins erode, which ultimately leads to lower valuations.

While the COVID-19 expense discipline mindset helped companies endure the challenges of the past two years, it’s time for the security industry to look ahead to new opportunities for growth. As expenses rise, security companies must focus on growing revenues to maintain margins and cash flow. Those companies that can continue to grow their businesses (and RMRs) with a focus on maintaining margin and expense discipline will end the year with stronger cash flow and valuation metrics than those companies that do not. Investing in sustainable sales created at a reasonable creation cost — along with disciplined acquisitions that include sales teams or new services to augment existing services — may be the secret ingredient to higher RMR growth this year. — Jennifer Holloway is managing director and market lead, Security Industry Group at CIBC US, a North American bank that provides tailored commercial, wealth management, personal, and small-business financial solutions, as well as cross-border banking services, to clients. Contact her at jennifer.holloway@cibc.com.


“Labor challenges so far have presented the most difficulty for us. At one point in 2021, we had 21 interviews set up in one day and only one applicant showed up,” wrote No. 52, DFW Security.

“The residential market for us remained soft as new home construction was slow in both 2020 and 2021. Life-safety products were in scarce supply and high demand and we experienced some difficulty in sourcing the missing components necessary to finish some jobs. Additionally, we saw cost increases of up to 15 percent due to inflation, surprising us and adding to the complexity of the process. We navigated this by forecasting out 4-6 months out and ordering ahead,” wrote No. 61, Advanced Security Systems (SDM’s 2021 Dealer of the Year).

“We feel our greatest accomplishment for 2021 was our ability to adapt to, and overcome what seemed to be an endless stream of potentially crippling challenges affecting our customers, employees and the security industry as a whole.”
- LOUD Security

Despite these challenges, the SDM 100 dealers stayed strong, and even grew in some key areas. Collectively, they brought in more than $702 million in RMR in 2021, up 6 percent over 2020; and $11.5 billion in total annual revenue, a 6.5 percent increase from the previous year! Eighty-three percent of SDM 100 companies reported positive RMR growth. Only two of the top 10 showed a decrease in RMR. Two others were unable to provide a comparison number for the previous year, but due to mergers or acquisitions are up significantly over their numbers in last year’s report. Total subscribers tipped down again by 4 percent, continuing a multi-year trend; and profits stayed mostly steady, with 46 percent reporting an increase in 2021.

“We feel our greatest accomplishment for 2021 was our ability to adapt to, and overcome what seemed to be an endless stream of potentially crippling challenges affecting our customers, employees and the security industry as a whole,” wrote No. 69, LOUD Security Systems Inc. of this challenging year.


Top Market Trends & Challenges

For many top security dealers, the commercial side of business provided a life line that offset a struggling residential sector.

No. 74, Custom Alarm, wrote: “We saw a growth in our commercial segment, in particular, in access and video as business owners were wanting to monitor and manage the workforce and business remotely. Our residential segment was up and down based on how homeowners were reacting to the pandemic and healthcare risks and concerns of people in their homes. We had significant growth in fire installation and developed a new RMR opportunity with access control cloud. The market for us was strong in fire, some growth in advanced systems and average with residential.”

Podcast: Mike Barnes

IMAGE COURTESY OF MIKE BARNES, BARNES ASSOCIATES

SDM recently spoke with Mike Barnes, founding partner of Barnes Associates, to discuss many of the same trends highlighted by the SDM 100 companies.

No. 16, Per Mar Security Services, described the market for security systems sales in 2021 as strong compared to 2020. “We saw more willingness to make capital expenditures, and more companies open to using higher end technology to solve operational problems.”

Some pointed to challenges on both sides, particularly with work-from-home trends.

“The market was even more difficult in 2021 than it was in 2020,” wrote No. 40, All Guard Alarm Systems Inc. “In 2021, companies were settling into their work from home schedule. This created buildings, suites or entire offices being vacated. Fire Alarm system requirements provided some stability since building owners were still required to have their buildings monitored for fire systems. Residential customers were more difficult because people who work from home were fooled into thinking that since they were home, they didn’t need a monitored account.”

April Maloney, vice president of sales for No. 8, Guardian Protection, wrote: “The market for residential sales has remained relatively flat or average compared to 2020-2021. Our builder channel experienced great challenges with supply chain issues related to everything from windows to appliances. Essentially, sales were strong but getting to installation took longer, causing more fall off. Supply chain issues also caused a backlog of security and home automation sales from being activated, driven by construction completion times that were three or four times the norm. Because of extended delays there could be more fall off in these sales than in the past, which could result in weaker market results in 2022.”

No. 69 LOUD Security noted strength in both residential and commercial markets, thanks to one technology: video.

“LOUD Security saw a 15 percent increase in system sales in 2021 over the previous year. From our discussions with other dealers, we believe the industry as a whole enjoyed a marked increase in sales revenues, both in unit sales and average costs spent on a system. The most apparent reason may be the direct and indirect impacts of COVID across all demographics and markets. Fear of the pandemic, as well as measures taken to curtail its spread, caused a slow-down in the economy, resulting in both homeowners and businesses alike facing an uncertain forecast of job losses and business closings. While crime steadily increased on the home front, businesses also dealt with the impact of long-term shuttering and lack of staffing for security. The immediate solution for both ends of the market seemed to play out in a steady demand for low-cost video surveillance and increased monitored security equipment.”

Also complicating matters in 2021 was the looming 3G sunset. While several dealers touted completing — or nearly completing — all of their conversions, others pointed to ongoing challenges and fears of resulting attrition and continuing fallout.

“As the 3G sunset descends upon us, connectivity issues increase dramatically, and reality settles, it will drive consumer push for connectable upgrades,” wrote Jason Bradley, vice president care and monitoring operations for No. 8., Guardian Protection. “Additionally, the ripple effect of the sunset will impact customer attrition for the entire industry as those consumers decide whether to continue service.  Even if deemed retainable, it may spark the search for alternative providers. These factors and the rapid increase in the work-from-home population have and continue to raise the need for home security by consumers. It will all make for a very important year for attrition control!”


SDM 100: 5-Year Snapshot

The table above presents aggregate figures for the SDM 100 group of companies, which are ranked by their recurring monthly revenue (RMR) — an industry standard of valuation of a security installation/monitoring business. Most of the SDM 100 companies are privately held. Submitting RMR is required for ranking; other figures are not required but mostly provided. Most companies — but not all — also reported their total annual revenue, number of subscribers, installation revenues, employees, and acquisition activity. Therefore, one should exercise caution in using this information to extrapolate industry totals or to benchmark. Note that some figures — such as total annual revenue, subscribers, and residential and non-residential sales revenue — fluctuate from year to year due to both acquisitions and inconsistent reporting by the ranked companies. Every effort is made by SDM to maintain consistency in reporting. // Source: 2022 SDM 100, SDM Magazine, May 2022

SDM 100 RMR Up 6 Percent to $702 Million

Total SDM 100 recurring monthly revenue (Based on 12/31 in $ millions)

Recurring monthly revenue (RMR) in 2021 for SDM 100 companies was up a healthy 6 percent overall over 2020, with 83 percent of companies reporting RMR growth in 2021. While six out of top 25 companies reported lower RMR than 2020, this was offset by higher gains than the previous year for those who reported an increase. As a group, this represents the second largest total RMR reported in the last decade. Stand-out companies among the top 25 in RMR growth are: Allied Universal Technology Services, 85.29 percent; Briscoe Protective, 33.56 percent; AMAROK LLC, 26.43 percent; Doyle Security Systems Inc., 22.83 percent; Vivint Smart Home, 14.03 percent; and AMP Smart, 11.76 percent. // Source: 2022 SDM 100, SDM Magazine, May 2022

Total Annual Revenue: $11.5 Billion

Total SDM 100 Annual Revenue ($ billions)

Total annual revenue for the SDM 100 companies rose 6.5 percent in 2021 after two years of stagnant growth. This year Securitas elected not to report for the SDM 100 due to its ongoing acquisition of Stanley Security. However, Alert 360 reported its combined revenue with My Alarm Center; Pye-Barker, which acquired a number of fire and security companies in 2021, is reporting for the first time, and CTSI also made numerous acquisitions this year. // Source: 2022 SDM 100, SDM Magazine, May 2022

Dealers Say 2022 Revenue Looking Up

SDM 100 dealer optimism continues to rise. More than 80 percent expect revenues to increase, up from 78 percent last year. Only 1 percent expect them to decrease, down from 8 percent last year. Of those who predict and increase, the average anticipated increase is 12 percent, up from 10 percent last year. // Source: 2022 SDM 100, SDM Magazine, May 2022

SDM 100: PRODUCT Category Segments

Average percentage of total revenue among SDM 100 companies, distributed by types of products/technology

Security companies derive their total revenue from a wide variety of product segments, including the two most sizable — integrated non-residential systems and intrusion (burglar) alarm systems. (Integrated-technology systems comprise two or more types of technologies.) There were no significant changes in these product segmentations year-over-year. // Source: 2022 SDM 100, SDM Magazine, May 2022

SDM 100: SERVICE Category Segments

Average percentage of total revenue among SDM 100 companies, distributed by types of services

Security companies derive their revenue from a wide variety of categories of service, the two most sizable of which — sales/installation, and monitoring ― comprised an average of 40 percent and 38 percent percent of SDM 100 companies’ revenue in 2021. This year sales/installation edged out monitoring for the top spot, but the two are fairly evenly split. // Source: 2022 SDM 100, SDM Magazine, May 2022

Installation & Tech Service Top Opportunities at SDM 100 Companies

Average percentage of staff employed in various departments at SDM 100 companies

The best opportunities for employment among SDM 100 companies are once again in installation and technical service (tied at 22 percent), followed by marketing (11 percent). This chart shows the average percentage of each position within an SDM 100 company’s total employee base. The most significant changes in the distribution of these positions compared with the prior year is technical service positions rose by 10 percentage points. Other changes were insignificant. // Source: 2022 SDM 100, SDM Magazine, May 2022

Profits Stay Steady

SDM 100 companies were asked, "Did your company’s net profit margin increase, decrease or stay about the same in 2021 compared with 2020?"

The percentage of SDM 100 companies reporting increased profits dipped slightly, with 46 percent of companies this year reporting better profit performance, compared with 50 percent reporting the same in 2020. However, that is the same number that reported an increase in 2019, pre-pandemic. Among businesses that improved, their average profit margin increase was also four percentage points lower than from 2019 to 2020. // Source: 2022 SDM 100, SDM Magazine, May 2022

SDM 100 Average Net Profit Margin

SDM 100 companies were asked, "What was your company's net profit margin in 2021?"

16%*

*average percentage, based on 63 responses

Of the SDM 100 companies who reported their actual net profit margins, responses ranged from 0 percent to 59 percent, with the average net profit in 2021 of 16 percent — up four percentage points from 2020. // Source: 2022 SDM 100, SDM Magazine, May 2022

SDM 100 Dealers Gained 6 Percent Subscribers in 2021

Percentage of subscribers gained or lost in each of the following years:

Looking at the number of subscribers that dealers indicated they gained or lost in 2021, SDM 100 companies in aggregate gained 6 percent more subscriber accounts in 2021, continuing a positive trend. The comparison is among companies that reported number of subscribers for both the prior year (2020) and end of year 2021. // Source: 2022 SDM 100, SDM Magazine, May 2022

Over 7,000 Security Vehicles in Use in 2021

Number of vehicles used by SDM 100 companies

SDM asked companies how many vehicles are in their company fleet that are used for technical service, sales, and other purposes. A total of 84 companies (not including many of the larger SDM 100 businesses), reported 7,403 vehicles in use in 2021, up significantly from 4,940 in 2020 and up even over 2019, when 6,000 vehicles were reported. // Source: 2022 SDM 100, SDM Magazine, May 2022


Choppy Waters Ahead?

Beyond the normal business concerns, such as the sunset, there are several issues weighing on the minds of the top 100 security dealers for 2022. While more than 80 percent of them predict revenues will increase this year, the same challenges they faced in 2021 are still present and not looking to go away soon. In addition, other world events were just starting to pose other questions at the time of the SDM 100 survey.

“Our 2022 is looking pretty scary — supply chain being the number one concern, quickly followed by finding and retaining employees,” wrote No. 39 Peak Alarm.

Supply chain issues, and resulting cost increases, were the top concern of a majority of SDM 100 companies.

“The issue that will greatly affect Beacon Protection going forward is supply chain issues that continue to plague the entire country,” wrote No. 50, Beacon Protection. “This coupled with inflation will have an effect on our buying power as a company and may reflect our own profitability. All companies will have to make a critical decision on whether or not to pass the increased costs to the customer or let it affect their own financial earnings.”

“Our 2022 is looking pretty scary — supply chain being the number one concern, quickly followed by finding and retaining employees.”
— Peak Alarm

No. 80, Vortex 1 Security, wrote: “The greatest impact to our business in 2022 will be the inflation pressures from the economy. Not only does this impact our pricing but it also affects our current employees and cost of living. This is by far the biggest issue for 2022. We are still expecting to see supply chain issues throughout the year as well.”

No. 77, A+ Technology & Security Solutions Inc., lamented, “2022 is all about supply chain. Our customers are opened back up, we have pent-up demand and our manufacturers cannot get us the products, pushing projects back. Without supply chain we would expect a much better ’22 than ’21.

The impact of the conflict between Russia and Ukraine was also an uncertainty for a few of the respondents, with some speculating it could make supply chain and inflation issues worse than they already were.

Responding in February just prior to the Russian invasion of Ukraine, No. 62, Fleenor Security Systems, wrote: “I see the supply chain crisis making the biggest impact on our business in 2022. With the fed possibly raising interest rates up to seven times in 2022, and the threat of a Russian invasion of Ukraine, the economy is probably going to slow if these things happen. This will affect new projects coming out of the ground. Labor shortages for experienced personnel will continue to plague our industry as well.”

No. 76, Dehart Alarm Systems Inc., also wondered about the impact it might have: “Everyone is waiting to see how the current war in Ukraine affects our economy. Don’t forget about inflation, supply chain, continuing COVID issues and what steps our government takes to deal with all of these issues.”

While they may be learning to live with COVID changes, some saw it as less of an issue moving forward, while others very much foresee its continuing impact on the market.

No. 31, Security Equipment Inc., wrote: “Everything about 2022 is going to have COVID poured all over it, from workforce reductions due to quarantines and sickness, supply chain issues and customers who do not want us in their homes and businesses. It is a constant schedule challenge with 15-20 percent of our workforce being out any given week.”

Last but by no means least, the labor shortage the industry has faced for the past several years has only been exacerbated by the pandemic, working from home and the “great resignation.”

Guardian’s Maloney wrote: “Recruiting employees and staying competitive enough to attract recruits will continue to impact organizations. If the challenges of the current environment continue, it may be difficult to retain employees who have a perception that there are better opportunities for them in the marketplace.”

“At a time where many other companies are struggling, our industry seems to sustain itself during unprecedented times.”
— All Guard Alarm Systems

On a more hopeful note, some point to a continuing strong economy, and the famous resilience of the security industry that has so far seen them continue to prosper through two already tough years.

“At a time where many other companies are struggling, our industry seems to sustain itself during unprecedented times,” wrote No. 40, All Guard Alarm Systems.

For another industry perspective on the positives to look for in 2022, see the exclusive online sidebar, “Price Increases, Robust Pipelines Could Drive Growth for Security Companies”.


Objective of the SDM 100

The SDM 100 has been published since 1991.

Its primary objective is to measure consumer dollars gained by security companies, in order to present an account of the size of the market captured by the 100 largest providers. SDM 100 companies are ranked by their recurring monthly revenue. RMR is the revenue associated with the contractual agreement between a security company and its subscriber — derived from customer billing for services such as monitoring, contracted service/system maintenance, security-as-a-service and managed/cloud solutions, and leasing of security systems — and is typically the basis for valuation of a security company. RMR is the language of security company executives and is meaningful in comparative analysis among industry peers. Of the 100 security dealers ranked, 33 of them earned more than $1 million in RMR in 2021.


How to Purchase the SDM 100 Directory

Wouldn’t it be useful to have more information about each of the 100 companies ranked here? The 2021 SDM 100 Directory includes contact names, mailing addresses, telephone numbers, website URLs, branch office locations, product buyer names, installation data, and more. The SDM 100 Directory comes in Microsoft Excel format. To order, contact Jackie Bean at 215-939-8967 or by e-mail to beanj@bnpmedia.com.